Scarcity
A situation in which unlimited wants exceed the limited resources available to fulfill those wants.
Economics
The study of the choices people make to attain their goals, given their scares resources.
Economic Model
a simplified version of reality used to analyze real-world economic situations
Marginal analysis
Analysis that involves comparing marginal benefits and marginal costs.
Trade-off
the idea that because of scarcity, producing more of one good or service means producing less of another good or service.
Opportunity cost
the highest-valued alternative that must be given up to engage in an activity
Centrally planned economy
An economy in which the government decides how economic resources will be allocated
Market Economy
an economy in which the decisions of households and firms interacting in markets allocate economic resources
Mixed economy
An economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources
Productive efficiency
the situation in which a good or service is produced at the lowest possible cost
Allocative efficiency
A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it
Voluntary exchange
a situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction
Economic variable
something measurable that can have different values, such as the wages of software programmers
Positive analysis
Analysis concerned with what is.
Normative analysis
Analysis concerned with what ought to be.
Microeconomics
the study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
Macroeconomics
the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth
Scarcity
a situation in which unlimited wants exceed the limited resources available to fulfill those wants
Production possibilities frontier (PPF)
a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology
Opportunity cost
the highest-valued alternative that must be given up to engage in an activity
Economic Growth
the ability of the economy to produce increasing quantities of goods and services
Absolute advantage
the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources
Comparative advantage
the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors
Market
a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade
Product markets
markets for goods- such as computers- and services- such as medical treatment.
Factor Markets
Markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability
Factors of production
the inputs used to produce goods and services
Circular-flow diagram
A model that illustrates how participants in markets are linked
Free market
a market with few government restrictions on how a good or service can be produced or sold or on how a factor of production can be employed
Entrepreneur
Someone who operates a business, bringing together the factors of production - Labor, capital, and natural resources - to produce goods and services.
Property rights
the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.